Author: Leslie Budd
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The pros of being predictable

Updated Wednesday, 31st July 2013
Nigel Wilson, Group CEO of Legal & General, discusses the advantages of being seen as 'dull but worthy'.

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Talking to Leslie Budd, Group CEO of Legal & General Nigel Wilson discusses the advantages of being stable and predictable, offering solid returns for investors over a long period. Nigel also shares his view of the financial services being treated as a regulated utility.

Nigel Wilson and Leslie Budd were talking after a recording of The Bottom Line.

LESLIE BUDD

Nigel, in the light of the financial crisis, is there an advantage of being seen as a rather dull company that generates solid returns for its investors over a longer period?

NIGEL WILSON

I think there is a case for that. In fact we’ve been characterised as being dull but worthy. Which at first I objected to because I thought that was an unflattering comment but I realise in hindsight that actually it does reflect the sort of business that we are is that we have stable predictable source of earnings and we’re a business with a real social purpose; hence the worthy to the title.

LESLIE BUDD

And recently you’ve been critical of increased capital requirements. I was wondering what your views are of financial services being treated as a regulated utility.

NIGEL WILSON

Well you can see that happening across the globe. Clearly they allowed financial services to become too unregulated. Sort of the irony is that they were supposedly heavily regulated by the regulator and turned out to be a lot less regulated than anybody thought and that contributed to the financial crisis of 2008. And in certain areas they’ve overregulated which has caused the unintended consequences of a number of areas like gender neutral pricing would be one example that the withdrawal of interest-only mortgages from the mortgage markets being a further example.

LESLIE BUDD

Going back to being a solid performing company, would you say that companies like L&G actually balance between what’s become, was becoming a bearish equity market and a bullish bond market, and your returns of equity have actually been very healthy.

NIGEL WILSON

Our returns have been healthy and I think the balance word is one that we’d use in many ways to describe our businesses. We have about $700bn of funds under management, which is a mixture between both equities and bonds, and we see having bonds and equities as being important for many different types of investors across the world.

LESLIE BUDD

And you could say you’ve got a tail business which is private equity which you describe as venture capital. Private actually often gets a bad name, but does an organisation like yours have to be in that kind of portfolio as well?

NIGEL WILSON

Well we don’t have to be in private equity. Our most recent venture is to buy a house builder. You know, we’ve been so disappointed with the number of houses that are built in Britain that we’ve decided to stop moaning and whinging about it and get onto doing and that we would like to build houses for sale. But increasingly we’d like to build houses to rent, because we think that customers in Britain are getting a raw deal on rental levels. They’re too high and increasing too fast in many parts of the world. And much of the debate has been about the affordability of buying houses, whereas we think the number of houses that are being built in Britain particularly over the last twenty or thirty years has been disappointing and very depressingly low.

LESLIE BUDD

And just by way of an extension of that, would you actually consider investing actually directly in housing associations given they go to the market.

NIGEL WILSON

We’ve already invested directly in housing associations and we will continue to do so. You know, it’s part of our social purpose. Legal & General likes to think of itself and indeed we believe it is a business with a real social purpose and therefore we will continue and invest in socially good things for UK PLC. We have a view that UK PLC is a great brand which has been underinvested in in many ways over a lot of years, and we’re increasingly determined to invest in UK PLC.

LESLIE BUDD

Okay finally picking up on the social part that’s the Financial Services Authority singularly failed in its public duty to educate the public about financial services. Is there a role for organisations like yours but also influencing the new Financial Conduct Authority in actually getting across that risk of return caveat emptor and actually contributing on managing the possibility of a future bubble.

NIGEL WILSON

Absolutely! I think the whole of the population probably in the UK needs more education on financial services, and in many ways it starts at school level. We have a programme called ‘Money Money Money’ that we introduced to a number of schools to try and get them to educate their school children who get thrust upon the adult world with very little financial knowledge and get forced or tempted into entering into all sorts of complicated financial contracts which can turn out to be very detrimental to their financial health.

In general much of the education in the UK in financial products is relatively poor. We feel particularly proud at the moment about the efforts that have been made in auto enrolment in the pensions area, where the education’s been soon good that we have a 92% opt-in rate into our pensions, which is an incredibly high level, well above most optimistic expectation, and that’s because of the, in part because of the quality of the material that’s been introduced which is encouraging people to invest in a very important asset, their pension.

LESLIE BUDD

And would you extend that into vocation education which also has been at traditional weakness in the UK?

NIGEL WILSON

I would indeed. I think that’s self-evident that there are many models around the world which we can copy in the UK because they’re successful elsewhere, and we can just adapt them for the UK, and certainly some of the examples in Germany have been fantastic in that area, and indeed in parts of California and America there’s some great models that again we can lift and shift. We can bring them out of those geographies and bring them across here. The auto enrolment is really the Australian pension model, which we’ve largely copied here in the UK, and it implemented incredibly successfully.

LESLIE BUDD

Thank you very much indeed.

NIGEL WILSON

Thank you.

 

 

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